Usage
Loans can be given on an individual
basis but are often used for business
purposes. The ability to repay over a long period of time is attractive
for new or expanding enterprises, as the assumption is that they will increase their profit over a time. Loans
are a good way of quickly increasing capital in order to raise a business’ supply capabilities or
range. For instance, some new companies may use a loan to buy company vehicles
or rent more space for their operations.
Considerations
One thing to consider when getting a
term loan is whether the interest rate is fixed or floating.
A fixed interest rate means that, the percentage of interest will never
increase, regardless of the financial market. Low-interest periods are usually
an excellent time to take out a fixed rate loan. Floating interest rates will
fluctuate with the market, which can be good or bad for you depending on what
happens with the global and national economy. Since some loans last for 10
years, getting that the rate will stay consistently low is a real risk.
Also, consider whether the loan you
are looking at uses compound
interest. If it does, the amount of interest will be periodically added
to the principal {borrowed
amount), meaning that the interest keeps getting higher the longer the term
lasts. If the loan does use compound interest, check to see if there are any
penalties for early repayment of the loan. If you get a windfall or profits increase spectacularly,
you may be able to pay off your entire balance before it is due, preventing you
from paying additional interest by waiting for the loan term to end.
Some loaning institutions offer a
variety of repayment plans for your term loan. Commonly, you may choose to pay
off your debt in even amounts, or the amount you pay will gradually increase
over the loan period. If you expect that your will be more financially able to
repay in the future, choosing an incremental increase may help you and save you
interest. If you are unsure of your future monetary position, even payments may
help prevent defaulting
on the loan if things go badly.
Choosing a loan may be in your best interest, depending
on your circumstances. Beware of extremely long repayment periods, as generally
speaking, the longer the term, the more you will owe because the interest
accrues over a long period of time. For more information, contact us for financial advisor.
Student
loans
Some student loans are essentially term loans. In the
United States, the Stafford Loan
is often offered to college students as a means of paying tuition and living
expenses. This loan is unique in several ways, and can be very beneficial to
students. Part of the loan may be subsidized, so that interest does not accrue
while the student remains in school. Students are also typically given a six
month grace period
following graduation before beginning repayments.
In finance, a loan is a debt provided by one entity
(organization or individual) to another entity at an interest rate, and evidenced by a written document called loan agreement,
which specifies, among other things, the principal amount, interest rate, and
date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time,
between the lender and
the borrower.
In a loan, the borrower initially
receives or borrows an amount of money, called the principal, from the lender, and is
obligated to pay back or repay an equal amount of money to the
lender at a later time. Typically, the money is paid back in regular installments,
or partial repayments; in an annuity,
each installment is the same amount.
The loan is generally provided at a
cost, referred to as interest
on the debt, which provides an incentive for the lender to engage in the
loan. In a legal loan, each of these obligations and restrictions is enforced
by contract, which can
also place the borrower under additional restrictions known as loan covenants. Although this article focuses on monetary loans, in
practice any material object might be lent.
Acting as a provider of loans is one
of the principal tasks for financial
institutions. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
A
secured loan is a loan in which the borrower pledges some asset (e.g. a car or
landed property) as collateral.
A
mortgage loan is a very common type of debt instrument, used by many individuals
to purchase housing. In this arrangement, the money is used to purchase the
property. The financial institution, however, is given security — a lien on the
title to the house — until the mortgage is paid off in full. If the borrower
defaults on the loan, the bank would have the legal right to repossess the
house and sell it, to recover sums owing to it.
In some instances, a loan taken out
to purchase a new or used car may be secured by the car; in much the same way
as a mortgage is secured by the house. The duration of the loan period is
considerably shorter — often corresponding to the useful life of the car. There
are two types of auto loans, direct and indirect. A direct auto loan is where a
bank gives the loan directly to a consumer. An indirect auto loan is where a
car dealership acts as an intermediary between the bank or financial
institution and the consumer.
Unsecured
Unsecured loans are monetary loans
that are not secured against the borrower's assets. These may be available from
financial institutions under many different guises or marketing packages:
- credit card debt
- personal loans
- bank overdrafts
- credit facilities or lines of credit
- corporate bonds (may be secured or unsecured)
The interest rates applicable to
these different forms may vary depending on the lender and the borrower. These
may or may not be regulated by law. In the United Kingdom, when applied to
individuals, these may come under the Consumer Credit Act 1974.
Interest rates on unsecured loans
are nearly always higher than for secured loans, because an unsecured lender's
options for recourse against the borrower in the event of default are severely
limited. An unsecured lender must sue the borrower, obtain a money judgment for
breach of contract, and then pursue execution of the judgment against the
borrower's unencumbered assets (that is, the ones not already pledged to
secured lenders). In insolvency proceedings, secured lenders traditionally have
priority over unsecured lenders when a court divides up the borrower's assets.
Thus, a higher interest rate reflects the additional risk that in the event of
insolvency, the debt may be uncollectible.
Demand
Demand loans are short term loans that are atypical in that they do not have fixed dates for
repayment and carry a floating interest rate which varies according to the
prime lending rate. They can be "called" for repayment by the lending
institution at any time. Demand loans may be unsecured or secured.
Subsidized
A subsidized loan is a loan on which
the interest is reduced by an explicit or hidden subsidy. In the context of
college loans in the United States, it refers to a loan on which no interest is
accrued while a student remains enrolled in education.
Concessional
A concessional loan, sometimes
called a "soft loan," is granted on terms substantially more generous
than market loans either through below-market interest rates, by grace periods
or a combination of both. Such loans may be made by foreign governments to poor
countries or may be offered to employees of lending institutions as an employee
benefit.
Target
markets
Personal
or commercial
Loans can also be subcategorized
according to whether the debtor is an individual person (consumer) or a
business. Common personal loans include mortgage loans, car loans, home equity
lines of credit, credit cards, installment loans and payday loans.
The credit score of the borrower is a major component in and underwriting and
interest rates (APR) of these loans. The monthly payments of personal loans can
be decreased by selecting longer payment terms, but overall interest paid
increases as well. For car loans in the U.S., the average term was about 60
months in 2009.
Loans to businesses are similar to
the above, but also include commercial mortgages and corporate bonds.
Underwriting is not based upon credit score but rather credit rating.
Loan
payment
The most typical loan payment type
is the fully amortizing payment in which each monthly rate has the same value
over time.
The fixed monthly payment P
for a loan of L for n months and a monthly interest rate c
is:
For more information see
"Monthly loan or mortgage payments" under Compound Interest
Abuses
in lending
Usury is a different form of abuse,
where the lender charges excessive interest. In different time periods and
cultures the acceptable interest rate has varied, from no interest at all to
unlimited interest rates. Credit card companies in some countries have been
accused by consumer organizations of lending at usurious interest rates and
making money out of frivolous "extra charges"
Abuses can also take place in the
form of the customer abusing the lender by not repaying the loan or with an
intent to defraud the lender.
United
States taxes
Most of the basic rules governing
how loans are handled for tax purposes in the United States are codified by
both Congress (the Internal Revenue Code) and the Treasury Department (Treasury
Regulations — another set of rules that interpret the Internal Revenue Code).
Yet such rules are
universally accepted.
1. A loan is not gross income to
the borrower.
Since the borrower
has the obligation to repay the loan, the borrower has no accession to wealth.
2. The lender may not deduct (from
own gross income) the amount of the loan.
The rationale here is
that one asset (the cash) has been converted into a different asset (a promise
of repayment).
Deductions are not
typically available when an outlay serves to create a new or different asset.
3. The amount paid to satisfy the
loan obligation is not deductible (from own gross income) by the borrower.
4. Repayment of the loan is not
gross income to the lender.
In effect, the
promise of repayment is converted back to cash, with no accession to wealth by
the lender.
5. Interest paid to the lender is
included in the lender’s gross income.
Interest paid represents
compensation for the use of the lender’s money or property and thus represents
profit or an accession to wealth to the lender.
Interest income can
be attributed to lenders even if the lender doesn’t charge a minimum amount of
interest.
6. Interest paid to the lender may
be deductible by the borrower.
In general, interest
paid in connection with the borrower’s business activity is deductible, while
interest paid on personal loans are not deductible.
The major exception
here is interest paid on a home mortgage.
Income
from discharge of indebtedness
Although a loan does not start out
as income to the borrower, it becomes income to the borrower if the borrower is
discharged of indebtedness. Thus, if a debt is discharged, then the
borrower essentially has received income equal to the amount of the
indebtedness. The Internal Revenue Code lists “Income from Discharge of
Indebtedness” in Section 61(a)(12) as a source of gross income.
Example: X owes Y N50,000. If Y
discharges the indebtedness, then X no longer owes Y N50,000. For purposes of
calculating income, this should be treated the same way as if Y gave X N50,000.
For details on how to obtain loan or
startup capital call; 836721009 , 07088788710 or e-mail: bizideasvestergmail.com on payment of Ten thousand five hundred naira (N10,500) into our
company’s account.
ZENITH BANK PLC:
Account Name: Vester Royal Business Magnet Company
Account No: 1013355170
Ecobank (Nig) Ltd:
Account Name:
VESTER ROYAL BUSINESS MAGNET COMPANY.
Account No:4392017160.
After Payment call or send text message stating,
your email id, bank paid
in, teller no, Purpose of payment, and amount paid,
to: 08036721009, or 07088788710 for
immediate delivery of your order.
You can contact us for free Life and Hospital Insurance policy.
